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Cape Town best city to be a landlord

Personal Finance

Demand for residential property is massively outstripping supply in Cape Town, whereas the market is almost in equilibrium in Gauteng, the latest vacancy survey by specialist tenant credit bureau TPN shows.

The near-balance between supply and demand in Gauteng explains the low rental escalations of 3.23 percent in that province in the third quarter, the survey says, while the “hopeless” lack of stock to meet growing demand explains why landlords in Cape Town can impose increases of 12.13 percent (refer to these graphs).

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TPN’s estate agent and landlord survey calculates the total number of vacant properties expressed as a percentage of the total number of rental properties. A vacant property is defined as a property that is unoccupied and on the market for immediate occupation – in other words, it is not being held back for maintenance or other reasons.

Capital growth aside, property investors are chasing good income yields, which can be achieved only if tenants meet their payment obligations and if vacancy rates are low, TPN says.

In order to quantify the strength of the rental market, the TPN estate agent and landlord survey asks respondents to rate supply and demand in their area. Respondents indicate whether demand is strong (100), average (50) or weak (0), and whether supply is strong (100), average (50) or weak (0). Data is aggregated to provide a Demand Rating and a Supply Rating, and the difference is the Market Strength Index, where a result of 50 suggests a market in equilibrium.

Nationally, the TPN Rental Market Strength Index was 61.47 in the third quarter of this year, with the index slowly moving in the direction of equilibrium as the Demand Rating (78.15) drops off and the Supply Rating (55.22) edges upwards.

In Gauteng, the Demand Rating was 73.46 and the Supply Rating was 64.19. In Cape Town, the Demand Rating of 92.34 was under-supported by a Supply Rating of 37.23, TPN says.

In the third quarter, the national vacancy rate was 5.07 percent, with properties in the affordable segment (rent of R3 000 to R7 000 a month) fairing best, with a vacancy rate of only 4.31 percent (refer to this table).

The vacancy rate for properties in the mid-to-high-income segment (R12 000 to R25 000 a month) was nearly three times higher, at 11.98 percent, TPN says.

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